Category Archives: economy

Coronavirus support packages will reshape the future economy, and that presents an opportunity

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Ilan Noy, Te Herenga Waka — Victoria University of Wellington

Governments across the world have rolled out extensive financial packages to support individuals, businesses and large corporations affected by the COVID-19 pandemic.

Equally, central banks have decreased their lending rates to almost zero, and have announced extensive and previously untested direct lending to private corporations and financial companies.

In many wealthy countries, the support packages are record-breaking in their size and scope, such as the US$2.2 trillion stimulus package for the US economy.

The US and Australian stimulus packages each represent about 10% of GDP. New Zealand’s program is about 5% of GDP, but each country is experiencing the economic shock differently, has different existing safety nets and priorities, and different mechanisms to deliver this assistance.

These support packages will play a significant role in shaping our world for many years, and we should not allow the clear emergency of the situation to stop us questioning their design.



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New Zealand outstrips Australia, UK and US with $12 billion coronavirus package for business and people in isolation

Goals for financial support

Our work on economic recovery following natural hazards and disasters defines a set of build-back-better goals, and how they should be assessed.

This kind of thinking applies equally to our current predicament. We argue that globally, the purpose of COVID-19 stimulus packages should be threefold, and we should assess them against these three goals:

  1. make sure people’s basic needs are satisfied

  2. make it possible for the economy to spring back into action once the necessary social distancing measures are relaxed

  3. use these funds to create positive change, and rebuild areas we previously neglected (in many countries, this will mean investing in public health systems).



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To achieve the first goal of making sure people can meet their basic needs, many high-income countries – including the US, Greece, the UK and France – are either providing direct payments to all citizens (as in the US) or targeted support to those who lost income or jobs.

These payments are sometimes a fixed proportion of each recipient’s previous income, up to a cap (as in the UK), or are identical for everyone who has lost income (as in New Zealand).

From an economic perspective, it is clearly more efficient to provide support only to the people who really need it – those who have lost income and would not be able to support themselves and their dependants.

But these programs are also shaped by politics and ethics, and different countries chose different ways to distribute this assistance, not always based on need.

Restarting economies

Even better are programs that provide the wage subsidies through existing employers, such as Germany’s famed Kurzarbeit program (which translates to “work with shorter hours”) which was implemented during the 2008 global financial crisis.

New Zealand’s wage subsidy package is a similar program. It supports businesses to continue paying their staff even if they are unable to work.

Details of payments to businesses are posted online, to make sure employers comply and transfer these funds to their employees. This initiative was trialled after the 2011 Christchurch earthquake.



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A similar support was also implemented in Australia.

Generally, wage subsidies allow for continued employment of individuals who would otherwise be let go, and they will also assist in achieving the second goal of resuming economic activity once restrictions are relaxed.

Such programs have been shown to be effective in Germany and New Zealand in ameliorating unexpected shocks.

While employees need support, directly or indirectly, it is also important that small and medium-sized businesses are propped up so they are ready to forge ahead once it is possible to do so. They should receive grants and subsidised loans to pay their costs, other than wages. Otherwise many businesses will fail, and the recovery will be slow and hard.

Global impacts

Whether large corporations need to receive support depends partly on the longer-term importance of their sector. It is easier to justify support for national airlines, which are an important linchpin in many countries’ global ties, than to support fossil fuel producers, for example.

Nor are there many reasons why taxpayers (present and future) should bail out wealthy individual owners of large businesses, when these businesses could be restructured in bankruptcy proceedings that should not lead to their shutdown.

But the COVID-19 pandemic has impacts well beyond individual countries and their economies and may require global support mechanisms.

Most low- and middle-income countries have either not yet announced any assistance or their packages are less than 1% of GDP. They typically cannot afford more with their existing debt levels.

It is therefore incumbent on high-income countries that can afford larger fiscal support packages to help countries that cannot. But so far only a handful of high-income countries, including Finland and Norway, have provided such support.

The international institutions supported by the rich world, such as the International Monetary Fund (IMF) and the World Bank, should pull out all the stops and lend enough, and at concessionary rates, to low-income countries so they can, at the very least, provide for their people’s basic needs.

Without that support, the virus will continue to spread in low-income countries and defeat the draconian social distancing measures that almost every country is implementing now.

Finally, it is important that we scrutinise these programs carefully now, rather than only once the public health emergency has passed and they have been entrenched. The sums involved are incredibly large and we will be remiss if we mis-spend what we are now borrowing from our children and grandchildren.

* Stay in touch with The Conversation’s coverage from New Zealand experts by signing up for our weekly newsletter – delivered to you each Wednesday morning.The Conversation

Ilan Noy, Professor and Chair in the Economics of Disasters, Te Herenga Waka — Victoria University of Wellington

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Coronavirus Update: International

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Iran

Japan

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United Kingdom

Italy

Germany

What if I can’t pay my rent? These are the options for rent relief in Australia

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Mark Giancaspro, University of Adelaide and David Brown, University of Adelaide

You’ve lost income because of the coronavirus crisis and finding it hard to pay the bills. What if you can’t pay your rent?

The short answer, if you live in Australia, is that rules changes give you more time – at least six months – before you face eviction.

But that’s all. Nothing else has changed. As Prime Minister Scott Morrison has said, the moratorium on evictions “doesn’t mean there’s a moratorium on rents”.



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Whatever rent you don’t pay you will still owe, with consequences eventually.

There’s unlikely to be any other national assistance for residential tenants along the lines the commercial tenancy market might get.

But there may be other assistance on offer according to your state and territory. In Queensland, for example, you may be eligible for a one-off rental payment.

So this is how your options stand.

Eviction moratorium

The National Cabinet – incorporating the federal cabinet and state and territory leaders – announced the eviction moratorium on March 29. Rental law is a state and territory matter, so legal enforcement depends on these governments enacting legislation.

Tasmania was the first to do so, pre-empting the National Cabinet decision with a four-month ban on evictions. It’s likely a good indication of what other states and territories will do.

The Tasmanian legislation prohibits commercial and residential landlords from serving notice to vacate for rent arrears for the duration of the “emergency period”, unless:

  • the lease is non-fixed term and property is being sold (with notice being served before April 3)
  • the Residential Tenancy Commissioner orders termination because of “severe hardship” to either party.

Severe hardship is an established part of tenancy law. It allows parties to apply for a fixed-term lease to be terminated without penalty. It is possible a landlord could argue financial hardship based on needing rent to cover their own debts, but commissioners (or tribunals in other jurisdictions) are likely to scrutinise such applications closely.

(Severe hardship is discussed further below, under “What if I want to break the lease?”).

What if I don’t pay my rent?

If you don’t pay your rent, your debt will keep accruing. Once the moratorium ends, you face eviction.

Your landlord will have the right to keep your bond to cover the rent. If you owe more, they can chase it up through debt collectors or file court proceedings. If this happens, your personal credit rating could take a hit, and costs may be added to any judgment against you.

So take the Prime Minister’s advice: negotiate with your landlord or agent.

Try to work out an arrangement both sides can live with. Remember, many private landlords rely on rent to pay the mortgage. Even with the major banks offering mortgage relief during coronavirus crisis, the interest on that debt will keep accruing.



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Can I get any rent assistance?

There are generally no special provisions for rent assistance during the coronavirus crisis.

So far only Queensland is offering any form of special rental assistance – a one-off payment of up to $2,000, paid directly to your lessor. To be eligible, you must have lost your job due to the pandemic and have applied to Centrelink for income support.

In other states the usual rules for rent assistance apply. You need to first qualify for Centrelink income support, such as the JobSeeker payment, Youth Allowance or the Parenting Payment. Centrelink provides up to A$139 a fortnight if you’re single, and A$164 for a couple with two children.

What about a rent reduction?

As mentioned, there’s no sign there’ll be direct subsidies for residential tenants, though there may be a national package to reduce commercial rents.



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The closest thing so far announced is the Australian Capital Territory’s encouragement to residential landlords to lower rents by at least 25% through direct tax relief equal to half the discount (up about $100 a week). The scheme is voluntary, so it remains to be seen how effective it will be.

What if I want to break the lease?

If you’re not on a fixed-term lease, but a monthly or weekly tenancy, you simply have to give the required notice to the landlord (usually 21 days).

If you’re on fixed-term lease, state and territory laws allow both tenants and owners to apply to break the lease without penalty if its continuation causes “severe hardship”.

But this option “should be seen as a last resort,” advises the Tasmanian government. “It is best to maintain a positive relationship between owners and tenants. The best way to do this is for owners and tenants to discuss their concerns.”

It is possible your lease may contain a force majeure clause providing for suspension or termination when unforeseeable events (for which neither party is responsible) occur. Unfortunately, such clauses are extremely rare in leases, and unlikely to cover pandemics.

Is there anything else to consider?

If you consistently miss rent payments you risk going on a “black list” – a privately owned tenancy database that real estate agents use to screen tenants. A track record of missing payments can mean a black mark on a future rental application.

So the bottom line: talk with your landlord.

Correction: this article has been amended to clarify that consistent non-payment of rent is required to be listed on a residential tenancy database. The article originally suggested any non-payment was a risk. For more advice contact the tenants advice service in your state or territory.The Conversation

Mark Giancaspro, Lecturer in Law, University of Adelaide and David Brown, Co-Director, Bankruptcy and Insolvency Scholarship Unit, University of Adelaide

This article is republished from The Conversation under a Creative Commons license. Read the original article.

The Australian government opens a coronavirus super loophole: it’s legal to put your money in, take it out, and save on tax

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Robert Breunig, Crawford School of Public Policy, Australian National University and Tristram Sainsbury, Crawford School of Public Policy, Australian National University

How would you feel if you were having a Zoom meeting with your accountant and they asked “how would you like to save more than $5,000 in income tax over the next six months?”

While probably a bit sceptical (did I hear right? Maybe this technology is faulty? What’s the catch? Surely this is too good to be true?) you might be intrigued. You might even turn up the volume to make sure you hear the next bit.

What about if they followed up with, “It’s completely legal. The Australian government will be picking up the tab as part of the stimulus packages! Plus, you can do it mostly risk-free. But you do have to rearrange your financial affairs a bit, and deal with some bureaucratic hurdles.”

What the accountant would be referring to is a generous incentive that is on offer now over the next six months.

It is linked to the decision to temporarily allow the early release of A$10,000 in super this financial year and $10,000 the next.

When parliament approved the Coronavirus Economic Response Package Omnibus Bill 2020 last week, they put no new restrictions on how people could contribute into super.

This means that it’s possible to voluntarily contribute $10,000 of your pre-tax income into super over the next three months, and also apply to withdraw a $10,000 lump sum from super tax-free at some point before June 30.



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You still end up with $10,000 in your pocket. But if you contribute through a salary sacrifice arrangement with your employer and stay within the concessional contributions limits, your voluntary contributions will be taxed at 15% rather than your marginal personal tax rate.

When you pull out the funds from super, the withdrawal is tax free. And, you will be able to do the same thing again between July 1 and late September.

In a working paper released by the ANU’s Tax and Transfer Policy Institute, we described these kinds of situations – where people assume a different legal form in order to receive a lower marginal tax rate – as “tax arbitrage”. They are completely legal, and widespread.

Like other tax arbitrage opportunities, there are sizeable tax savings available from the pursuing of the super equivalent of the Hokey Pokey.

This chart illustrates the sums involved.

Potential tax saving in one specific scenario associated with salary sacrificing up to $10,000 into super and withdrawing it in the same financial year

Personal income tax calculations include the Low Income Tax Offset, Low and Middle Income Tax Offset and the Medicare Levy.

It applies to a very specific scenario: a working age individual who is on 9.5% compulsory super contributions, has an annual salary below $158,000, has made no previous voluntary contributions to super in 2019-20, and who elects to make a “simultaneous” (within 2019-20) pre-tax contribution to and withdrawal of the maximum possible $10,000 from super over the next three months.

It suggests that, as long as an individual in this situation has an annual income of approximately $30,000 or more, there is a prospective tax saving from rearranging his or her financial affairs over the next three months.

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The tax savings can be risk-free, if that’s what you want. If you were worried about the stock market falling further and taking away your contributions to super with it, you can direct your super fund to hold all new contributions purely as cash.

In all, its not a bad return for three (or six) month’s efforts – especially as it results purely from a change in legal fiction rather than any change in underlying economic activity.

Who can do it?

As always with these kinds of arrangements, the devil is in the detail, but there is a lot we already know.

First, the arrangements are targeted at those who have been adversely impacted by the coronavirus. On or after January 1, 2020 working hours (or turnover for sole traders) have to have been fallen by at least 20%.

And it benefits those willing to embrace the bureaucratic hurdles (or outsource the embracing to their accountant). Consistent with Australia’s self-assessment tax system, the onus is on the applicant to certify that they qualify. The Tax Office will then make a determination that the funds be released by the super fund.



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There appears to a fair bit of discretion left to the ATO as to what impacts from coronavirus will be considered sufficient.

One thing is that isn’t clear is what the base period for comparison is, although some examples provided by treasury compare outcomes over a month in 2020 against the average over the six months at the end of 2019.


Early access to super fact sheet, Commonwealth Treasury, March 2020

It seems quite straightforward if your workplace has cut back your hours or the business you own has had its trade (say) halved, but it is less clear cut if you have voluntarily scaled back your hours because of childcare or if you have returned from working overseas because of the virus.

The second key condition is you need to be fortunate enough to hold on to a job providing you with taxable income (or if you are self-employed, generating pre-tax income) of up to $10,000 over the next three, and maybe six, months. The new JobKeeper wage subsidy will help.

And you need to be able to handle the “cash flow” gap – between when you start salary sacrificing income (which reduces take-home pay) and when your super fund is able to release the income to you.



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But sole traders whose business is suspended and are ceasing earning income may not be able to do so. And salary sacrifice isn’t an option if you become unemployed and move on to a government welfare payment which doesn’t allow salary sacrifice.

The third key condition is you need to have enough assets in super to be able to withdraw $10,000 per quarter for the next six months. You can only make one application for an Australian Tax Office determination between now and June 30, and one application between July 1 and September 25.

What are we meant to make of it?

Taking it all together, a (probably unintended) consequence of the super changes has been to create a sizeable tax loophole for those who are relatively mildly impacted by the coronavirus, still earning taxable income, and have the financial capacity to salary sacrifice into super.

While it might initially sound like a niche opportunity, it could be of interest to a significant number of the estimated six million recipients of the JobKeeper payment.

The people who benefit will probably welcome their windfall. Some might, quite reasonably, point out that they should be expected to pay only the minimal tax legally applicable. They might even invoke the spirit of Kerry Packer.

At a system-wide level, though, this sort of tax planning is grossly unfair and leads to a tax system that is less efficient, more complex and less sustainable.



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At last, an answer to the $5 billion question: who gets the imputation cheques Labor will take away?

Income tax is easily the most important source of Commonwealth government revenue. Loopholes in it feed through into company tax reveune through refundable imputation (something Labor tried to wind back in the 2019 election). There is no inheritance tax. And the main consumption tax is set at a low rate, is far from comprehensive and doesn’t fund Commonwealth government spending.

We ought to worry about actions that erode the collection of personal income tax.

The policy process has moved astonishingly quickly in the past three weeks. There were always going to be mistakes, and during a recession its often wise for decision makers to not let the perfect become the enemy of the good.

But equally, we must safeguard against details that are objectively bad.

Now we’ll see how the government responds to error.The Conversation

Robert Breunig, Professor of Economics and Director, Tax and Transfer Policy Institute, Crawford School of Public Policy, Australian National University and Tristram Sainsbury, Research fellow, Tax and Transfer Policy Institute, Crawford School of Public Policy, Australian National University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Regaining control: the case for a short, sharp lockdown (rather than the slow trickle we’ve had so far)

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C Raina MacIntyre, UNSW; Louisa Jorm, UNSW; Richard Nunes-Vaz, Flinders University, and Timothy Churches, UNSW

Editor’s note: this is an edited version of a paper written in late March to outline the rationale for a short, sharp lockdown. The full version is here

The COVID-19 pandemic is unprecedented and may have long lasting global effects.

Until a vaccine is available, we have four main measures at our disposal:

  1. identifying every case rapidly with extensive testing, and isolating cases.
  2. tracking and quarantine of contacts
  3. travel restrictions
  4. social distancing (including lockdown) to reduce contact (and therefore spread of infection) between people.

Unlike countries such as South Korea, Australia has taken a slow trickle approach of phased, targeted restrictions to reduce social contact along with continued restricted testing.

We are in a partial lockdown state now, but it has been gradual. Different restrictions have been added on a rolling basis over a few weeks now, with schools still open. This is more of a slow trickle approach than a short, sharp, instant lockdown.

So far, Australia has not contained the epidemic as well as it could have, with a recent lapse in border control with the Ruby Princess cruise ship.

A silent epidemic may be growing, driven by mild or asymptomatic infections of people who did not meet our testing criteria.

A short, sharp lockdown for two to three incubation periods

The travel bans have been the most successful and strongest element of our approach. A phased approach of gradually increasing social distancing whilst keeping schools open will have some effect, but likely not enough.

It will leave us dealing with COVID-19 for much longer, with a slow trickle of new infections that keep feeding the epidemic. What’s needed is a short, sharp lockdown for two to three incubation periods (four to six weeks), combined with scaled up testing capacity and expanded testing criteria.

This strategy, similar to South Korea’s approach, would reduce the size of the epidemic substantially, spare the health system and give us a more manageable baseline from which to best protect Australia until a vaccine is available.

Epidemic growth is exponential, leaving little time for decision making. On March 1 we had 25 cases and now, nearly at the end of March we have over 4,700 cases.

While some of these are travel-imported cases, there is likely an as-yet undetected silent epidemic. In other words, there could be widespread community transmission of infections which restrictive testing and test kit shortages are preventing us from detecting.

We are concerned about the possibility of Australia losing control of the epidemic. We may well exceed health system capacity, increase the number of cases, experience health and economic losses, and a longer time to societal recovery.

A sharp lockdown needn’t last six to 12 months

While the curve has flattened since March 24, this is likely the impact of the travel bans implemented between March 5-10 on Iran, South Korea and Italy.

It is too early yet to see an impact of social distancing, and lapses like the Ruby Princess cruise ship incident, together with lack of testing for asymptomatic high-risk people, may allow transmission to continue in the community.

Modeling shows that the greatest impact will be gained by the most comprehensive and immediate social distancing measures (such as lockdown), combined with enhanced testing and quarantine.

The argument that such measures need to be long-term (six to 12 months) is incorrect. China has demonstrated the feasibility of a short lockdown followed by phased lifting of restrictions.

A short, sharp, complete lockdown of four to six weeks will improve Australia’s control of the epidemic, reduce case numbers more rapidly and bring us to a more manageable baseline. From there, we can start to phase in lifting of restrictions safely. Economic recovery can begin.

The slow trickle approach, especially if schools remain open, may result in continued epidemic growth, potential failure of the health system, and a far longer road to recovery.

An explainer video by the Australian Academy of Science.

A more comprehensive lockdown buys time

A comprehensive lock-down also buys time to scale up required testing, capacity for rapid case identification and isolation, and for thorough tracking and quarantine of contacts.

Contact tracing could be aided by novel smart phone apps, deployed with great success in South Korea.

For lockdown to be successful in a short, sharp burst, it must be accompanied by scaled up testing. We must ensure every new case can be identified rapidly during the lockdown and in the follow-up phase, when restrictions are lifted.

We need greatly expanded testing including asymptomatic, high risk people (contacts, evacuees and people in enclosed outbreaks such as cruise ships, aged care facilities, prisons). And we must allow doctors to use their clinical judgement to order a test.

It’s time to scale up our capacity to produce test kits domestically, procure them from overseas or actively ask for help from other countries that have achieved testing at scale.

Without such an improvement in the public health response capacity, the coronavirus epidemic will almost certainly bounce back when even the current lockdown restrictions are lifted.

We have examples of countries which have failed and succeeded. We should allow these examples to guide our response.



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The Conversation

C Raina MacIntyre, Professor of Global Biosecurity, NHMRC Principal Research Fellow, Head, Biosecurity Program, Kirby Institute, UNSW; Louisa Jorm, Director, Centre for Big Data Research in Health, UNSW; Richard Nunes-Vaz, Adjunct Professor, Torrens Resilience Institute, Flinders University, and Timothy Churches, Senior Research Fellow, Health Data Science, UNSW

This article is republished from The Conversation under a Creative Commons license. Read the original article.

The coronavirus response calls into question the future of super

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Warwick Smith, University of Melbourne

Understandably, given we are in a crisis, the government has baulked at including superannuation contributions in the A$140 billion worth of $1,500 per fortnight wage top-ups it will be directing to six million Australians.

As the JobKeeper fact sheet puts it:

It will be up to the employer if they want to pay superannuation on any additional wage paid because of the JobKeeper Payment.


Source: Australian Tax Office

This is in the middle of a treasury led Retirement Income Review that is considering, among other things, whether the current 9.5% of salary contribution should be increased to 10% and then to 10.5% and then in a series of annual steps to 12% by 2025.

In considering the idea (it is actually leglislated – if the government decided not to go ahead it would need to unleglislate it) it helps to go back to basiscs.

The blinding power of money

The trouble with money is most people are so busy looking at it they are blind to what’s going on in the real economy – by which I mean the production and distribution of goods and services.

Our current material standard of living depends almost entirely on our current ability to produce goods and services (assuming for a moment imports are funded by exports).

Similarly, our standard of living in 2050 will depend almost entirely on our capacity to produce goods at that time. This means it has little to do with how much money is in our superannuation accounts.

Part of the justification for superannuation is to get us more resources in retirement, and it will for those who have big super balances, but it won’t do much to change the total amount of resources available at the time.

The limits to saving

Often it’s put another way. We are told baby boomers need to fund themselves in retirement, instead of relying on pensions paid for by those who are still in the workforce.

But imagine a perfect scenario where every retired baby boomer has $1 million in super, freeing those still working from the tax burden of funding the pension.

When the boomers are using their super to buy services and goods, who are they going to take them away from?

You guessed it, those still working.

They’ll be giving up resources to support the retirement of boomers, whoever supplies the cash.

In the main, saving can’t create resources

If there was no superannuation and the government instead taxed current workers in order to fund retiree consumption, the real cost to workers would be the same. That cost is the provision of goods and services to retired people instead of workers.

Individuals can indeed save for the future by foregoing some goods and services today in order to have more of them later. Financial planners refer to it as consumption smoothing.

But an entire society can’t save for the future through consumption smoothing.

If Australia as a whole consumes fewer goods and services in one year, it is likely to reduce rather than increase its future wealth because it is fully utilised labour and capital that drives investment and productivity.



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That’s what lies at the core of misunderstandings about the superannuation system. Foreign investment aside, it can’t allow an entire society to save for the future to support itself in retirement.

It can skew the distribution of resources in future years, away from those of working age and those with low super balances towards those with (tax concession subsidised) high super balances.

Boosting productivity can help

If our goal is an adequate and sustainable income in retirement for all Australians, our main priority ought to be ensuring that those remaining in the workforce are productive enough to support themselves, their children, those without work and those who have retired.

In other words, if you’re worried about the economic impact of our ageing population on our material standard of living (and there are reasons not to be worried) you would want our focus to be on productivity, rather than retirement savings.



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To the extent retirement savings are used for productivity enhancing investment, that’s good. The reality is much of our retirement savings are funnelled relatively unthinkingly into an already bloated financial system where they expand speculative bubbles.

Elsewhere I’ve referred to it as Australia’s first compulsory Ponzi scheme.

Like most important economic questions, the best retirement income system is not, at its core, solely an economic question, it is also a moral and political question about distribution and inequality.

So, with that in mind, here’s what my personal moral (plus economic) analysis tells me would be the best retirement income system.

We could give the money back, slowly

The best way would be to get rid of compulsory superannuation, give all the money back to account holders (slowly to avoid too much inflation), mandate a 9.5% pay rise in its place and redirect the tens of billions of dollars we currently spend on superannuation tax concessions toward rent assistance, a higher Newstart allowance and a higher pension.

With retired renters better looked after, a moderate (say 20%) increase in the pension, and continued indexation of the pension to wages, no retired Australian would be living in poverty.

It’d be sustainable so long as we ensured sufficient worker productivity, primarily through full employment, appropriate infrastructure investment and well-supported education, training and research.

There, problem solved.The Conversation

Warwick Smith, Research economist, University of Melbourne

This article is republished from The Conversation under a Creative Commons license. Read the original article.

For public transport to keep running, operators must find ways to outlast coronavirus

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Yale Z Wong, University of Sydney

Minimising health risks has rightly been the focus of discussion during the coronavirus outbreak. This includes efforts to protect both frontline public transport employees and the travelling public. But we should also be concerned about the strategic, financial consequences for transport operators and their workforces.

We have already seen the struggles of the aviation industry. The COVID-19 pandemic also has major financial implications for the public transport sector. While it has been declared an essential service, fears about coronavirus, widespread work-from-home directives, cancellations of major events and potential city-wide lockdowns will result in massive drops in patronage.

Railways are a high fixed-cost industry (like airlines) and are particularly vulnerable to demand volatility.



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The Chinese experience has been that people preferred to use private cars and services like taxis and ride hailing rather than public transport. In New York, we have seen a surge in cycling as people seek to avoid the subway crowds.

What are the impacts on revenue?

Developments like these appear inevitable. However, the loss of revenue for transport operators depends very much on the design and specifications of their contracts with government.

Most urban public transport systems in Australia are “gross cost” regimes. This means operators are paid on a per kilometre basis regardless of the number of passengers carried. These operators are much less susceptible to changes in demand.

Transport operators who work off “net cost” contracts – meaning they keep their fare revenue – are facing huge financial pressures. This in turn has implications for the cash flows of their suppliers, including vehicle manufacturers and consultancies.

Hong Kong rail operator MTR (which has businesses in Melbourne and Sydney), already battling almost a year of protests, has been forced into significant service reductions. In Japan, some Shinkansen services are being suspended as patronage plummets. Many Asian operators have diversified revenue streams from property developments, but large falls in patronage also affect the ability to collect rents (such as from retail).

We are also seeing US transit agencies calling for emergency funding as demand drops. Major service cuts are on the horizon – suggestions include running a weekend schedule on weekdays. This is likely to reduce patronage further as the service becomes less useful for the travelling public.



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Any service reduction has major ramifications for public transport workforces. Permanent staff may have their work hours reduced, while casual staff will struggle to get rostered. This will add to the psychological impacts on staff.

The global collapse in oil prices is another factor as the lower cost of fuel makes driving more attractive.

Beyond government-contracted public transport there are many intercity coach operators and small-to-medium-sized charter operators (many family-owned). These operators serve the school, tourist, airport, hotel and special-needs markets. They are all private commercial operators.

Many charter operators have already seen a massive reduction in bookings due to the summer bushfires and travel bans. The loss of international tourism and cancellation of school excursions and extracurricular activities will bring even greater pain to charter operators and their workforces. Chinese tours have been a large part of the charter market.

On the other side of the ledger are increased costs arising from enhanced cleaning efforts and changes in operational practices to reduce the risks of COVID-19 infection for as long as the crisis lasts.



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Scott Morrison has said we’ll face at least 6 months of disruption. Where does that number come from?

A major issue in these circumstances is how to provide incentives for transport operators to go above and beyond what is required as part of their usual remit. Do operators merely “comply” with their contract specifications, or do they see an opportunity to extract value from proactively deploying, for instance, an enhanced disinfection regime? Should the contracted operator bear the extra costs, or should government share these costs?

Reshaping the industry

COVID-19 brings enormous unknowns for the public transport sector. Cost and revenue pressures may lead to transport operators fighting for survival. The result could be market consolidation and less competition in the industry.

In the longer term, how can future contract design for both transport services and transport assets ensure resilience to “black swan” events and encourage a proactive, rather than reactive, response? Too often, a myopic focus on cost reduction has governed these discussions.

Finally, is there a way to protect commercial operators from huge swings in demand?

The coronavirus pandemic demands an urgent operational response by our public transport systems. But it should also encourage a strategic rethinking of our institutional structures and how public services are procured. Let us create an opportunity for longer-term reform out of the crisis.The Conversation

Yale Z Wong, Research Associate, Institute of Transport and Logistics Studies, University of Sydney

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Why closing our borders to foreign workers could see fruit and vegetable prices spike

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Dave Hunt/AAP

Michael Rose, Australian National University

One aspect of the COVID-19 crisis that has so far escaped widespread public attention in Australia is its potential impact on our food security.

We haven’t seen supermarket shortages of fruit and vegetables like toilet paper and pasta because, being perishable, they are not easily stockpiled and therefore less prone to demand-side spikes.



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But being perishable also makes them more susceptible to supply-side shocks, such as we’re seeing with higher prices now for the likes of broccoli due to the impact of drought and bushfires.

The major variable in whether the coronavirus crisis will hurt fruit, vegetable and nut supplies (and prices) depends on how they are picked while the nation’s border remains closed to the foreign seasonal workers on which Australian farmers depend.

Foreign muscles, Australian fruit

Rural Australia’s dependence on the muscles of tens of thousands of backpackers and workers on temporary working visas is sometime minimised by official statistics.

More than one-third of peak seasonal jobs on horticultural farms are filled by overseas workers, according to the Australian Bureau of Agricultural and Resource Economics and Sciences.

But anyone in direct contact with the industry knows most direct harvest labour in Australia is done by foreigners.

Official statistics about agricultural workers are rubbery. The Australian Bureau of Statistics, for example, can only estimate the total number of workers at between 240,000 and 408,000.

The vagueness is due to three reason. First, the data is based on a single month (in this case August 2016) and picking work is seasonal, with less workers employed in winter. Second, workers move around, so double-counting can occur. Third, overseas workers and contract workers provided by labour hire companies are not included in labour force surveys.

What immigration data tells us, however, is that in 2017-18 about 31,000 backpackers did at least 88 days of farm work to be eligible to extend their visas for a year. (There are no numbers for the number of backpackers working on farms for other reasons.)

A further 8,500 workers from Pacific Island nations and Timor-Leste worked on farms for up to six months on visas issued under Australia’s Seasonal Worker Programme. This increased to about 12,000 in 2018-19.

Domestic restrictions

The indefinite closure of Australia’s borders to non-resident foreign nationals jeopardises this supply of farm workers.

The question is whether the spike in domestic unemployment will see Australian workers (and other foreign workers) displaced from other sectors flocking to rural areas to take up those jobs.

Possible complications are travel restrictions, with states closing borders and city dwellers being told to stay away from Australia’s country towns, and the Australian government’s income assistance measures.

As migration researcher Henry Sherrell notes of the job seeker allowance being doubled to A$550 a week, “that’s a pretty decent week if you’re on picking piece rates”.



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“In theory, Australians laid off in the many sectors now facing recession could head for the countryside and start picking fruit,” he argues in an article co-authored with Stephen Howes, an economics professor at the ANU Crawford School of Public Policy.

In practice, it is just not going to happen. The work is difficult, and farms often geographically isolated. It would take years not months to change the reality that farm work is just not in the choice set of most Australians – who, after all, live in one of the most urbanised and richest countries in the world.

An exemption for seasonal workers

Allowing backpackers and seasonal workers in Australia to extend their visas is an obvious first step. On top of any measures to encourage foreign workers to stay, the longer term may require making an exception to the ban on their entering the country.

The entry of seasonal workers from the Pacific and Timor-Leste already requires medical checks before they travel. Exempting those with seasonal work visas from our closed border policy would not be unreasonable. Canada, which runs a similar guest worker program, has already done so.

With Australian help, workers could be tested for COVID-19 before they fly. On arrival here they would be quarantined for 14 days like everyone else.

The government would need to step in and pay for suitable accommodation, catering and medical services. It would also need to ensure arrangements so workers can get home. But there are there a number of benefits to justify the cost.



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How migrant workers are critical to the future of Australia’s agricultural industry

It contributes not only to Australia’s food security but also its national interest, maintaining and deepening its bonds with its island neighbours.

If there is a silver lining to the current grim situation, it may be that it could serve to make real the rhetoric that our relationship with the Pacific (and Timor-Leste) is one defined by partnership, in which we help ourselves through helping each other.The Conversation

Michael Rose, Research fellow, Australian National University

This article is republished from The Conversation under a Creative Commons license. Read the original article.